SUBJECT: TERMS

Accelerated Depreciation
Any method of depreciation used for accounting or income tax purposes that allow greater deductions in the earlier years of the life of an asset.
Accounting Method
In terms of taxation, the method by which income and expenses are determined for taxation purposes
Accounting Period
In general, the time period reflected by a set of financial statements.
Accounting Rate of Return - ARR
ARR provides a quick estimate of a project's worth over its useful life. ARR is derived by finding profits before taxes and interest.
Accounts Payable - AP
Accounts payable are debts that must be paid off within a given period of time in order to avoid default. For example, at the corporate level, AP
refers to short-term debt payments to suppliers and banks.
Payables are not limited to corporations. At the household level, people are also subject to bill payment for goods or services provided to them by creditors. For example, the
phone company, the gas company and the cable company are types of creditors. Each one of these creditors provide a service first and then bills the customer after the
fact. The payable is essentially a short-term IOU from a customer to the creditor.
Each demands payment for goods or services rendered and must be paid accordingly. If people or companies don't pay their bills, they are considered to be in default.
Accounts Receivable - AR
Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. Receivables
usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from a few days to a year.
On a public company's balance sheet, accounts receivable is often recorded as an asset because this represents a legal obligation for the customer to remit cash for its shortterm debts
Accrual Accounting
The need for this method arose out of the increasing complexity of business transactions and a desire for more accurate financial information.
Selling on credit and projects that provide revenue streams over a long period of time affect the company's financial condition at the point of the
transaction. Therefore, it makes sense that such events should also be reflected on the financial statements during the same reporting period that
these transactions occur.
For example, when a company sells a TV to a customer who uses a credit card, cash and accrual methods will view the event differently. The revenue
generated by the sale of the TV will only be recognized by the cash method when the money is received by the company. If the TV is purchased on

credit, this revenue might not be recognized until next month or next year.
Accrual accounting, however, says that the cash method isn't accurate because it is likely, if not certain, that the company will receive the cash
at some point in the future because the sale has been made. Therefore, the accrual accounting method instead recognizes the TV sale at the
point at which the customer takes ownership of the TV. Even though cash isn't yet in the bank, the sale is booked to an account known in
accounting lingo as "accounts receivable," increasing the seller's revenue.
Accrued Expense
Accrued expenses are the opposite of prepaid expenses. Firms will typically incur periodic expenses such as wages, interest and taxes. Even
though they are to be paid at some future date, they are indicated on the firm's balance sheet from when the firm can reasonably expect their
payment, until the time they are paid.
An example would be accruing interest that is building up on a bank loan.
Accrued Income
For example, assume that a company is expected to complete services for another company once per month for six consecutive months, but
that under the terms of the contract, it will not receive monetary payment for these services until the end of the six-month period. The company
performing the services can accrue a percentage of the income earned after each month, even though physical payment will not take place
until after the six-month period.
Actuarial Analysis
The analysis of an investment's risk done by an actuary
A highly educated actuary will use statistics and historical data in an attempt to measure the risk of a particular investment.
Actuary
A professional statistician working for an insurance company. They evaluate your application and medical records to project how long you will live.
Ad Valorem Tax
The phrase ad valorem is Latin for "according to value". In the case of municipal property taxes, property owners have their property assessed
on a periodic basis by a public tax assessor. The assessed value of the property is then used to compute an annual tax, which is levied on the
owner by his or her municipality. Ad valorem taxes are incurred through ownership of an asset, in contrast to transactional taxes
such as sales taxes, which are incurred only at the time of transaction.
Alternative Minimum Tax - AMT
A tax calculation that adds certain tax preference items back into adjusted gross income. If AMT is higher than the regular tax liability for the year
the regular tax and the amount by which the AMT exceeds the regular tax are paid.
AMT is designed to prevent taxpayers from escaping their fair share of tax liability by using certain tax breaks.
Amortization

. The paying off of debt in regular installments over a period of time.

2. The deduction of capital expenses over a specific period of time (usually over the asset's life). More specifically, this method measures
the consumption of the value of intangible assets, such as a patent or a copyright.
Suppose XYZ Biotech spent $30 million dollars on a piece of medical equipment and that the patent on the equipment lasts 15 years,
this would mean that $2 million would be recorded each year as an amortization expense.
While amortization and depreciation are often used interchangeably, technically this is an incorrect practice because amortization refers
to intangible assets and depreciation refers to tangible assets.
Appraiser
A practitioner who has the knowledge and expertise necessary to estimate the value of an asset, or the likelihood of an event occurring, and the cost of such an occurrence.
Ideally, an appraiser acts independently of the buying and selling parties in a transaction in order to arrive at the fair value of an asset without bias
Arbitrage
The simultaneous purchase and sale of an asset in order to profit from a difference in the price. This usually takes place on
different exchanges or marketplaces.
Also known as a "risk less profit".
Here's an example of arbitrage: Say a domestic stock also trades on a foreign exchange in another country, where it hasn't adjusted for the
constantly changing exchange rate. A trader purchases the stock where it is undervalued and short sells the stock where it is overvalued, thus
profiting from the difference. Arbitrage is recommended for experienced investors only.
Arbitration
An informal hearing regarding a dispute. The dispute is judged by a group of people (generally three) who have been selected by an impartial panel.
Once a decision has been reached, there is no further appeal process.
We frequently hear this term when professional sports teams are negotiating contracts with their athletes.
Typically, one party aims unrealistically high and the other one aims really low, and the settlement occurs somewhere in the middle.
Assessor
A local government official who determines the value of a property for taxation purposes.
Asset Management Company - AMC
A company that invests its clients' pooled fund into securities that match its declared financial objectives. Asset management companies
provide investors with more diversification and investing options than they would have by themselves.
Mutual funds, hedge funds and pension plans are all run by asset management companies. These companies earn income by
charging service fees to their clients.
AMCs offer their clients more diversification because they have a larger pool of resources than the individual investor. Pooling assets
together and paying out proportional returns allows investors to avoid minimum investment requirements often required when purchasing
securities on their own, as well as the ability to invest in a larger set of securities with a smaller investment.
Asset-Backed Commercial Paper

A short-term investment vehicle with a maturity that is typically between 90 and 180 days. The security itself is typically issued
by a bank or other financial institution. The notes are backed by physical assets such as trade receivables, and are generally
used for short-term financing needs.
Attrition
The reduction in staff and employees in a company through normal means, such as retirement and resignation.
This is natural in any business and industry.
Auction Market
A market in which buyers enter competitive bids and sellers enter competitive offers at the same time. The price a stock is traded represents the
highest price that a buyer is willing to pay and the lowest price that a seller is willing to sell at. Matching bids and offers are then paired together and
the orders are executed.
Authorized Stock
The maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation.
This figure is usually listed in the capital accounts section of the balance sheet.
Also known as "authorized shares" or "authorized capital stock".
Average-Cost Method
A costing method by which the value of a pool of assets or expenses is assumed to be equal to the average cost of the assets or expenses in the pool.
B-Share
A class in a family of multi-class mutual funds. This class is characterized by a back-end load structure that is paid only when the fund is sold.
Bad Debt Reserve
An account set aside by a company to account for and offset losses that arise as a result of defaults from futures loans.
This figure may be calculated based on historical norms or other known information about the relative safety of the debt.
Bad debt reserves become alarming when they reach levels outside of historical norms or averages, either at the company level
or the national level. For instance, there are many concerns today about China's high bad debt reserves at its banks,
an aftereffect of many years of almost non-existent lending requirements.
Balance Of Payments - BOP
A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the
dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments
means that more money is flowing out of the country than coming in, and vice versa.
Balance Of Trade - BOT
The difference between a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments.

Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad.
Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy.
A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.
Also referred to as "trade balance".
Banker's Acceptance - BA
A short-term credit investment created by a non-financial firm and guaranteed by a bank.
Bankruptcy
A legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with
a petition filed by the debtor (most common) or on behalf of creditors (less common). All of the debtor's assets are measured and evaluated,
whereupon the assets are used to repay a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the
debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.
Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply can't be paid while offering creditors a chance
to obtain some measure of repayment based on what assets are available. In theory, the ability to file for bankruptcy can benefit an
overall economy by giving persons and businesses another chance and providing creditors with a measure of debt repayment.
Bankruptcy filings in the United States can fall under one of several chapters of the Bankruptcy Code, such as Chapter 7
(which involves liquidation of assets), Chapter 11 (company or individual "reorganizations") and
Chapter 13 (debt repayment with lowered debt covenants or payment plans). Bankruptcy filing specifications
vary widely among different countries, leading to higher and lower filing rates depending on how easily a person or
company can complete the process.
Bear Market
A market condition in which the prices of securities are falling or are expected to fall.
Although figures can vary, a downturn of 15-20% or more in multiple indexes (Dow or S&P 500) is
considered an entry into a bear market.
Beta
A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
Also known as "beta coefficient".
Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market.
A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less
volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market.
For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.
Many utilities stocks have a beta of less than 1. Conversely, most high-tech Nasdaq-based stocks have a beta of greater than 1,
offering the possibility of a higher rate of return, but also posing more risk
Black Scholes Model
A model of price variation over time of financial instruments such as stocks that can, among other things,
be used to determine the price of a European call option. The model assumes that the price of heavily traded assets follow a
geometric Brownian motion with constant drift and volatility. When applied to a stock option, the

model incorporates the constant price variation of the stock, the time value of money, the option's strike price and the time to the option's expiry.
Also known as the Black-Scholes-Merton Model.
The Black Scholes Model is one of the most important concepts in modern financial theory. It was developed
in 1973 by Fisher Black, Robert Merton and Myron Scholes and is still widely used today,
and regarded as one of the best ways of determining fair prices of options.
There are a number of variants of the original Black-Scholes model.
Blotter
A record of trades and the details of the trades made over a period of time (usually one trading day). The details of a trade will include such things as the time, price, order
size and a specification of whether it was a buy or sell order. The blotter is usually created through a trading software program that records the trades made through a data
feed.
Blue Chip
A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality,
widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably
in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.
The name "blue chip" came about because in the game of poker the blue chips have the highest value.
Blue chip stock is seen as a less volatile investment than owning shares in companies without blue chip status
because blue chips have an institutional status in the economy. The stock price of a blue chip usually closely follows the S&P 500
Book Building
The process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors.
An underwriter "builds a book" by accepting orders from fund managers indicating the number of shares they desire and the price they are willing to pay.
Book Value Per Common Share
A measure used by owners of common shares in a firm to determine the level of safety associated with each individual share
after all debts are paid accordingly.
Formula:

Should the company decide to dissolve, the book value per common indicates the dollar value remaining for
Common shareholders after all assets are liquidated and all debtors are paid.
In simple terms it would be the amount of money that a holder of a common share would get if a company were to liquidate.
Bottom Line
Refers to a company's net earnings, net income or earnings per share (EPS). Bottom line also refers to any actions that
may increase/decrease net earnings or a company's overall profit. A company that is growing its net earnings or reducing its
costs is said to be "improving its bottom line".
The reference to "bottom" describes the relative location of the net income figure on a company's income statement; it will

almost always be the last line at the bottom of the page. This reflects the fact that all expenses have already been taken out of revenues,
and there is nothing left to subtract. This stands in contrast to revenues, which are considered the "top line" figures.
Most companies aim to improve their bottom lines through two simultaneous methods:
growing revenues (i.e., generate top-line growth) and increasing efficiency (or cutting costs).

Brand Equity
Brand equity is created through aggressive mass marketing campaigns. Good examples of companies with
strong brand equity are corporations such as Nike and Coca-Cola, whose corporate logos are recognized worldwide.
An intangible value-added aspect of a particular good that is otherwise not considered unique.
Break-Even Point - BEP
1. in general, the point at which gains equal losses.
2. in options, the market price that a stock must reach for option buyers to avoid a loss if they exercise.
For a call, it is the strike price plus the premium paid. For a put, it is the strike price minus the premium paid.
Also referred to as a "breakeven".
For businesses, reaching the break-even point is the first major step towards profitability.

Breakpoint Sale
The sale of a mutual fund at a set dollar amount that allows the fund holder to move into a lower sales charge bracket.
If, at the time of investment, an investor is unable to come up with the funds needed to qualify for the lower fee,
he or she can sign a letter of intent promising to reach the total amount, or breakpoint, in a set time period.
Any sales that occur just below a breakpoint are considered unethical and in violation of FINRA (formerly the NASD) rules.
An example of a breakpoint sale would be when an investor plans to invest $95,000 in a front-load mutual fund and faces
a charge of 6.25% or $6,125. If the investor is properly advised, he or she will be told that adding $5,000 for a total
investment of $100,000 will qualify the sale fro a lower sales charge of 5.5%, or $5,500.
This means that the investor will essentially have $5,625 more invested than the initial purchase plan
due to the savings in sales charges.
Bridge Financing
A method of financing, used by companies before their IPO, to obtain necessary cash for the maintenance of operations
These funds are usually supplied by the investment bank underwriting the new issue. As payment, the company acquiring the
bridge financing will give a number of shares at a discount of the issue price to the underwriters that equally offsets the loan.
This financing is, in essence, a forwarded payment for the future sales of the new issue.
Bridge Loan
A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation.
This type of financing allows the user to meet current obligations by providing immediate cash flow.

The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of
collateral such as real estate or inventory.
Also known as "interim financing", "gap financing or a "swing loan".
In-House Financing
A type of seller financing in which a firm extends customers a loan, allowing them to purchase its goods or services.
In-house financing eliminates the firm's reliance on the financial sector for providing the customer with funds to complete a transaction.
The automobile sales industry is a prominent user of in-house financing. Many vehicle sales rely on the buyer taking a loan,
in-house financing allows the firm to complete more deals by accepting more customers. Whereas banks or other financial
intermediaries might turn down a loan application, car dealerships can choose to lend to customers with poor credit ratings.
Broker
1. An individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor.
2. The role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.
3. A licensed real estate professional who typically represents the seller of a property. A broker's duties may include:
determining market values, advertising properties for sale, showing properties to prospective buyers, and advising clients
with regard to offers and related matters.
Broker-Dealer
A person or firm in the business of buying and selling securities operating as both a broker and a dealer depending on the transaction.
Technically, a broker is only an agent who executes orders on behalf of clients, whereas a dealer acts as a principal and trades for his or her own account. Because most
brokerages act as both brokers and principals, the term broker-dealer is commonly used to describe them.

Agent
1.

An individual or firm that places securities transactions for clients.

2. A person licensed by a state to sell insurance.
3. A securities salesperson who represents a broker-dealer or issuer when selling or trying to sell securities to the investing public.

Essentially, this is the person who makes a transaction on behalf of his or her employer or client.
Buoyant
The term used to describe a commodities market where the prices generally rise with ease when there are considerable signals of strength.

These types of markets can be very volatile as the prices are rapid to rise and fall with investor sentiment.
Business Cycle
The recurring and fluctuating levels of economic activity that an economy experiences over a long period of time. The five stages of
the business cycle are growth (expansion), peak, recession (contraction), trough and recovery.
At one time, business cycles were thought to be extremely regular, with predictable durations,
but today they are widely believed to be irregular, varying in frequency, magnitude and duration.
Calculated Intangible Value - CIV
A method of valuing a company's intangible assets. This calculation attempts to allocate a fixed value to intangible assets
that does not change according to the company's market value. Examples of intangible assets include brand equity
and proprietary technology.
Usually a company's intangible assets are valued by subtracting a firm's book value from its market value. However, opponents of this method
argue that because market value constantly changes, the value of intangible assets changes also, making it an inferior measure.
Finding a company's CIV involves seven steps:
1. Calculate the average pretax earnings for the past three years.
2. Calculate the average year-end tangible assets for the past three years.
3. Calculate the company's return on assets (ROA).
4. Calculate the industry average ROA for the same three-year period as in Step 2.
5. Calculate excess ROA by multiplying the industry average ROA by the average tangible assets calculated in Step 2. Subtract the excess return from the pretax earnings
from Step 1.
6. Calculate the three-year average corporate tax rate and multiply by the excess return. Deduct the result from the excess return.
7. Calculate the net present value of the after-tax excess return. Use the company's cost of capital as a discount rate.
Capitalized Interest
An account created in the income statement section of a business' financial statements that holds a suitable amount of funds meant to
pay off upcoming interest payments. Furthermore, this type of interest is seen as an asset and unlike most conventional types of interest,
it also is expensed over time.
Some debate exists over the decision to capitalize interest for tax purposes. Some people don't prefer to take
the tax deduction benefit that arises from making an interest payment spread over time in a situation where
interest is capitalized. To these people, it is far more beneficial to receive the complete deduction right away.
Cash And Cash Equivalents - CCE
An item on the balance sheet that reports the value of a company's assets that are cash or can be converted into cash immediately.
Examples of cash and cash equivalents are bank accounts, marketable securities and Treasury bills.
Current Portion Of Long-Term Debt
A portion of the balance sheet that represents the total amount of long-term debt that must be paid within the next year.
The balance sheet has a liability section, which is broken down into long-term and current debt.
When a debt payment is set to be made in longer than a year's time, it is recorded in the long-term debt section,

and when that payment becomes due within a year, it moves to the "current portion of long-term debt" section.
The purpose and importance of this section of the balance sheet is that it gives investors an idea of
how much money will be spent this year to resolve the current portion of the long-term debt.
This can be compared to the current cash and cash equivalents to measure whether the
company is actually able to make the payment. A company with a large current portion and a small
cash position has a higher risk of default and should be a warning sign to investors.
Cash Earnings Per Share - Cash EPS
A measure of financial performance that looks at the cash flow generated by a company on a per share basis.
This differs from basic earnings per share (EPS), which looks at the net income of the company on a per share basis.
The higher a company's cash EPS, the better it is considered to have performed over the period.
A company's cash EPS can be used to draw comparisons to other companies or to the company's own past results.

You may sometimes see cash EPS defined as either EPS plus amortization of goodwill and other intangible items, or net income plus
depreciation divided by outstanding shares.
Whatever the definition, the point of cash EPS is that it's a stricter number than other variations on EPS because cash flow
cannot be manipulated as easily as net income.
Cash Flow Per Share

A measure of a firm's financial strength, calculated as follows:

Free Cash Flow FCF
A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the
cash that a company is able to generate after laying out the money required to maintain or expand its asset base.
Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value.
Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. FCF is calculated as:

It can also be calculated by taking operating cash flow and subtracting capital expenditures.
Discounted Cash Flow - DCF
A valuation method used to estimate the attractiveness of an investment opportunity.
Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them
(most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment.
If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.
Calculated as:

Chapter 11
Chapter 11 reorganization is the most complex of all bankruptcy cases and generally the most expensive.
It should be considered only after careful analysis and exploration of all other alternatives.
Named after the U.S. bankruptcy code 11, Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor's business
affairs and assets. It is generally filed by corporations which require time to restructure their debts.
Chapter 11 gives the debtor a fresh start, subject to the debtor's fulfillment of its obligations under its plan of reorganization
Commercial Paper
An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories
and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days.
The debt is usually issued at a discount, reflecting prevailing market interest rates.
Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt ratings will easily find buyers
without having to offer a substantial discount (higher cost) for the debt issue.
A major benefit of commercial paper is that it does not need to be registered with the Securities and Exchange Commission (SEC) as
long as it matures before nine months (270 days), making it a very cost-effective means of financing. The proceeds from this type of
financing can only be used on current assets (inventories) and are not allowed to be used on fixed assets, such as a new plant,
without SEC involvement.
Comprehensive Income
Equals net income minus all recognized changes in equity during a period.
Losses or gains on foreign currency transactions is an example. For most firms, comprehensive income is more
volatile, exceeding net income in some years, but falling below net income in others.
Conglomerate
A corporation that is made up of a number of different, seemingly unrelated businesses. In a conglomerate, one company owns
a controlling stake in a number of smaller companies, which conduct business separately. Each of a conglomerate's subsidiary
businesses runs independently of the other business divisions, but the subsidiaries' management reports to senior management

at the parent company.

The largest conglomerates diversify business risk by participating in a number of different markets,
although some conglomerates elect to participate in a single industry - for example, mining.
These are the two philosophies guiding many conglomerates:
1. By participating in a number of unrelated businesses, the parent corporation is able to reduce costs by using fewer resources.
2. By diversifying business interests, the risks inherent in operating in a single market are mitigated.
History has shown that conglomerates can become so diversified and complicated that they are too difficult to manage efficiently.
Since the height of their popularity in the period between the 1960s and the 1980s, many conglomerates have reduced the number
of businesses under their management to a few choice subsidiaries through divestiture and spinoffs.
Consolidate
To combine the assets, liabilities and other financial items of two or more entities into one.
This term is generally used in the context of consolidated financial statements. When statements are consolidated, all subsidiaries report under the umbrella of the parent
company.

Consolidated Financial Statements

The combined financial statements of a parent company and its subsidiaries.
Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge the overall health of
an entire group of companies as opposed to one company's stand alone position.

Consortium
A group made up of two or more individuals, companies or governments that work together toward achieving a chosen objective.
Each entity within the consortium is only responsible to the group in respect to the obligations that are set out in the consortium's contract.
Therefore, every entity that is under the consortium remains independent in his or her normal business operations and has no say over another
member's operations that are not related to the consortium.
Consortiums are often used within the non-profit sector, specifically with educational institutions. They often pool resources such as
libraries and professors and share them among the members of the group. Several groups of North American colleges and universities operate
under consortiums.
For-profit consortiums also exist, but they are less prevalent. One of the most famous for-profit consortiums is the airline manufacturer Airbus.
Joint Venture - JV
The cooperation of two or more individuals or businesses--each agreeing to share profit, loss and control--in a specific enterprise.

This is a good way for companies to partner without having to merge. JVs are typically taxed as a partnership.

Corporate Debt Restructuring

The reorganization of a company's outstanding obligations, often achieved by reducing the burden of the debts on the company by
decreasing the rates paid and increasing the time the company has to pay the obligation back. This allows a company to increase its
ability to meet the obligations. Also, some of the debt may be forgiven by creditors in exchange for an equity position in the company
The need for a corporate debt restructuring often arises when a company is going through financial hardship and is having difficulty in
meeting its obligations. If the troubles are enough to pose a high risk of the company going bankrupt, it can negotiate with its creditors
to reduce these burdens and increase its chances of avoiding bankruptcy. In the U.S., Chapter 11 proceedings allow for a company to
get protection from creditors with the hopes of renegotiating the terms on the debt agreements and survive as a going concern. Even
if the creditors don't agree to the terms of a plan put forth, if the court determines that it is fair it may impose the plan on creditors.
Corporate Finance
Any financial or monetary activity that deals with a company and its money.
This can include anything from IPOs to acquisitions.
Corporate Governance
The relationship between all the stakeholders in a company. This includes the shareholders, directors, and
management of a company, as defined by the corporate charter, bylaws, formal policy and rule of law.
Ethical companies are said to have excellent corporate governance
Deferred Revenue
A liability account used to collect deposits and other cash receipts prior to the completion of the sale.
Deferred revenue is important because it's the money a company collects before it actually delivers a product.
For example, a software company sells and receives payment for a computer program before it gets delivered or installed.
This doesn't get recorded as straight revenue because, if something goes wrong with the job, the money is at risk
Deferred Tax Asset
An asset on a company's balance sheet that may be used to reduce any subsequent period's income tax expense. Deferred tax assets
can arise due to net loss carryovers, which are only recorded as assets if it is deemed more likely than not that the asset will be used in
future fiscal periods
It must be determined that there is more than a 50% probability that the company will have positive accounting income in the next fiscal
period before the deferred tax asset can be applied.
If, for example, a company has a deferred tax asset of $25,000 on its balance sheet, and then the company earns
$75,000 in before-tax accounting income, accounting tax expense will be applied to $50,000 ($75,000 - $25,000), instead of $75,000.
Deferred Tax Liability
An account on a company's balance sheet that is a result of temporary differences between the company's accounting and tax carrying values,
the anticipated and enacted income tax rate, and estimated taxes payable for the current year. This liability may or may not be realized during

any given year, which makes the deferred status appropriate.

Because there are differences between what a company can deduct for tax and accounting purposes, there will be a difference between a
company's taxable income and income before tax. A deferred tax liability records the fact that the company will, in the future, pay
more income tax because of a transaction that took place during the current period, such as an installment sale receivable.
Deflation
A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in
government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since
there is a lower level of demand in the economy, which can lead to an economic depression.
Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories,
shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation,
the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices,
causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and
take some of the depressive pressures off wages and debtors of every kind.
Delisting
The removal of a listed security from the exchange on which it trades. Stock is removed from an exchange because the company for which the
stock is issued, whether voluntarily or involuntarily, is not in compliance with the listing requirements of the exchange
The reasons for delisting include violating regulations and/or failing to meet financial specifications set out by the stock exchange.
Companies that are delisted are not necessarily bankrupt, and may continue trading over the counter.
In order for a stock to be traded on an exchange, the company that issues the stock must meet the listing requirements set out by the exchange. Listing requirements include
minimum share prices, certain financial ratios, minimum sales levels, and so on. If listing requirements are not met by a company, the exchange that lists the company's
stock will probably issue a warning of non-compliance to the company. If the company's failure to meet listing requirements continues, the exchange may delist the
company's stock.
Demutualization
When a mutual company owned by its users/members converts into a company owned by shareholders. In effect,
the users/members exchange their rights of use for shares in the demutualized company.
A mutual company (not to be confused with a mutual fund) is a company created to provide specific services at the lowest possible
price to benefit its users/members. In demutualization, ownership of the mutual company is separated from the exclusive right to use
the services provided by the company.
Depletion
Unlike depreciation and amortization, which mainly describe the deduction of expenses due to the aging of equipment and property,
depletion is the actual physical reduction of natural resources by companies.
For example, coal mines, oil fields and other natural resources are depleted on company accounting statements. This reduction
in the quantity of resources is meant to assist in accurately identifying the value of the asset on the balance sheet
Direct Public Offering - DPO
When a company raises capital by marketing its shares directly to its own customers, employees, suppliers, distributors and friends in the community.
DPOs are an alternative to underwritten public offerings by securities broker-dealer firms where a company's shares are sold to the broker's
customers and prospects.

Direct public offerings are considerably less expensive than traditional underwritten offerings. Additionally, they don't have the restrictions that are
usually associated with bank and venture capital financing. On the other hand, a DPO will typically raise much less than a traditional offering.
Divestiture
The partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy. Divestiture can be done slowly and
systematically over a long period of time, or in large lots over a short time period.
For a business, divestiture is the removal of assets from the books. Businesses divest by the selling of ownership stakes, the closure of subsidiaries
the bankruptcy of divisions, and so on.
In personal finance, investors selling shares of a business can be said to be divesting their interests in the company being sold.
Dual Listing
A company's securities are listed on more than one exchange for the purpose of adding liquidity to the shares and
allow investors greater choice in where they can trade their shares.
Dual listing is not a widely used technique though it is thought to improve the spread between the bid and ask prices which helps investors obtain
a better price for their security. Hewlett-Packard (HP), for example, is listed on both the NYSE and Nasdaq.
EBITAE
Earnings Before Interest, Tax, Amortization And Exceptional Items
An accounting metric often used to deduct the amortization of intangible assets to arrive at a value. Companies will use EBITAE not only as a measure of performance, but
also to determine interest coverage capabilities. The eliminated items are often seen as factors that distort earnings that are derived from the underlying business operations of
a firm.
Calculated as:

Where expenses* represents expenses that exclude interest, taxes, amortization of intangible assets and exceptional items.
EBITDA-To-Interest Coverage Ratio
A ratio that is used to assess a company's financial durability by examining whether it is at least profitably enough to pay off its interest expenses.
A ratio greater than 1 indicates that the company has more than enough interest coverage to pay off its interest expenses.
The ratio is calculated as follows:

Equity Method
An accounting technique used by firms to assess the profits earned by their investments in other companies. The firm reports the income earned on the investment on its
income statement and the reported value is based on the firm's share of the company assets. The reported profit is proportional to the size of the equity investment. This is the
standard technique used when one company has significant influence over another.
When a company holds approximately 20-25% or more of another company's stock, it is considered to have significant control, which signifies the power that a company can
exert over another company. This power includes representation on the board of directors, partaking in company policy development and the interchanging of managerial
personnel. If a firm owns 25% of a company with a $1 million net income, that firm would report earnings of $250,000.
When the equity method is used to account for ownership in a company, the investor records the initial investment in the stock at cost, and then that value is periodically
adjusted to reflect the changes in value due to the investor's share in the company's income or losses.
Escrow
A financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until
it receives the appropriate written or oral instructions or until obligations have been fulfilled. Securities, funds and other assets can be held in escrow.
An escrow account can be used in the sale of a house, for example. If there are conditions to the sale, such as the passing of an inspection, the buyer and seller may agree to
use escrow. In this case, the buyer of the property will deposit the payment amount for the house in an escrow account held by a third party. This assures the seller - in
the process of allowing the house to be inspected - that the buyer is capable of making payment. Once all of the conditions to the sale are satisfied, the escrow transfers the
payment to the seller, and title is transferred to the buyer.
Escrowed Shares
Shares held in an escrow account and in most cases cannot be traded or transfered until certain circumstances like time horizon have been reached. The use of escrow for
holding shares is often done during acquisitions and for performance-based executive incentives.
These shares can be held by an escrow company or by the exchange the shares trade on.
Let's say a company puts up shares as a guarantee on an acquisition. Should that firm rescind the offer, they're likely to lose the shares.
Exchange-Traded Fund ETF
A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the
day as it is bought and sold.
Because it trades like a stock whose price fluctuates daily, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does.
By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that
the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that
you'd pay on any regular order.
One of the most widely known ETFs is called the Spider (SPDR), which tracks the S&P 500 index and trades under the symbol SPY.
Explicit Cost
A business expense that is easily identified and accounted for. Explicit costs represent clear, obvious cash outflows from a business that
reduce its bottom-line profitability. This contrasts with less-tangible expenses such as goodwill amortization,
which are not as clear cut regarding their effects on a business's bottom-line value.
Good examples of explicit costs would be items such as wage expense, rent or lease costs, and the cost of materials that

go into the production of goods. With these expenses, it is easy to see the source of the cash outflow and the business activities
to which the expense is attributed.
Implicit Cost
A cost that is represented by lost opportunity in the use of a company's own resources, excluding cash.
These are intangible costs that are not easily accounted for. For example, the time and effort that an owner puts into the
maintenance of the company rather than working on expansion.
Fundamental Analysis
A method of evaluating a security by attempting to measure its intrinsic value by examining related economic, financial and other qualitative
and quantitative factors. Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors
(like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies).
The end goal of performing fundamental analysis is to produce a value that an investor can compare with the security's current price in hopes
of figuring out what sort of position to take with that security (underpriced = buy, overpriced = sell or short).
This method of security analysis is considered to be the opposite of technical analysis.
Fundamental analysis is about using real data to evaluate a security's value. Although most analysts use fundamental analysis to value stocks, this method of valuation can be
used for just about any type of security.
For example, an investor can perform fundamental analysis on a bond's value by looking at economic factors, such as interest rates and the overall state of the economy, and
information about the bond issuer, such as potential changes in credit ratings. For assessing stocks, this method uses revenues, earnings, future growth, return on equity, profit
margins and other data to determine a company's underlying value and potential for future growth. In terms of stocks, fundamental analysis focuses on the financial
statements of a the company being evaluated.
One of the most famous and successful users of fundamental analysis is the Oracle of Omaha, Warren Buffett, who has been well known for successfully
employing fundamental analysis to pick securities. His abilities have turned him into a billionaire.
Factoring
Factoring is a word often misused synonymously with accounts receivable financing. Factoring is a financial transaction whereby a
business sells its accounts receivable (i.e., invoices) at a discount. Factoring differs from a bank loan in three main ways.
First, the emphasis is on the value of the receivables, not the firms credit worthiness. Secondly, factoring is not a loan
it is the purchase of an asset (the receivable). Finally, a bank loan involves two parties whereas factoring involves three.
The three parties directly involved are: the seller, debtor, and the factor. The seller is owed money (usually for work performed
or goods sold) by the second party, the debtor. The seller then sells one or more of its invoices at a discount to the third party,
the specialized financial organization (aka the factor) to obtain cash. The debtor then directly pays the factor the full value of the invoice.
Future Income Tax
Income tax that is deferred because of discrepancies between a company's tax return and the tax calculated on the company's financial statements.
Future income tax occurs when there is a greater amount of deductions on taxable income than on the net income that is calculated on a company's
income statement.
In simple terms future income tax is an adjustment accounting for the difference between what the company has already paid in taxes on

the current income and what they will have to pay in the future for this income. This difference occurs because companies are taxed by
government in a different way than from the way they calculate tax on their accounting records.
Globalization
The tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the globe,
thereby increasing the interconnectedness of different markets. Globalization has had the effect of markedly increasing not only international
trade, but also cultural exchange.
Hybrid Security
A security that combines two or more different financial instruments. Hybrid securities generally combine both debt and equity characteristics.
The most common example is a convertible bond that has features of an ordinary bond, but is heavily influenced by the price movements of the
stock into which it is convertible.
Often referred to as "hybrids".
New types of hybrid securities are being introduced all the time to meet the needs of sophisticated investors. Some of these securities get
so complicated that it's tough to define them as either debt or equity.
Hypothecation
When a person pledges a mortgage as collateral for a loan, it refers to the right that a banker has to liquidate goods if you fail to service a loan.
The term also applies to securities in a margin account used as collateral for money loaned from a brokerage.
Impaired Asset
A company's asset that is worth less on the market than the value listed on the company's balance sheet. This will result in a write-down
of that same asset account to the stated market price.
Accounts that are likely to be written down are the company's goodwill, accounts receivable and long-term assets.
If the sum of all estimated future cash flows is less than the carrying value of the asset, then the asset would be considered impaired and
would have to be written down to its fair value. Once an asset is written down, it may only be written back up under very few circumstances.
Firm's carrying goodwill on their books are required to make tests of impairment annually. Any impairments found will then be expensed on the
company's income statement.
Imputed Interest
A term used to describe interest that is considered to be paid; even through no interest payment has been made.
Imputed interest is calculated based on the actual payments that are to be, but have not yet been, paid. This interest is important for
discount bonds and other securities that are sold below face value and mature at par. The IRS uses an accretive method for calculating the
imputed interest on Treasury bonds, which are taxed yearly, even though no interest is paid until maturity.
Accretion
1.

Asset growth through addition or expansion.

2.

. In reference to discount bonds, it describes the accumulation of value until maturity.

1. Accretion can occur through a company's internal development or by way of mergers and acquisitions.
2. Bonds at discount are sold below face value and mature at par. In the duration between the bond's issuance and maturity,
no additional value is actually being accumulated within the bond but accretion occurs with the paper or implied capital gain.

Incentive Stock Option ISO

A type of employee stock option with a tax benefit, when you exercise, of not having to pay ordinary income tax. Instead, the options
are taxed at a capital gains rate. Although ISOs have more favorable tax treatment than non-qualified stock options (NSOs), they also
require the holder to take on more risk by having to hold onto the stock for a longer period of time in order to receive the better tax treatment.
Also, numerous requirements must be met in order to qualify as an ISO.
Insolvency
When an individual or organization can no longer meet its financial obligations with its lender or lenders as debts become due. Insolvency can
lead to insolvency proceedings, in which legal action will be taken against the insolvent entity, and assets may be liquidated to pay off outstanding debts.
Before an insolvent company or person gets involved in insolvency proceedings, it will likely be involved in more informal arrangements with creditors,
such as making alternative payment arrangements. Insolvency can arise from poor cash management, a reduction in the forecasted cash inflow or
from an increase in cash expenses.
Intangible Asset
An asset that is not physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies),
goodwill and brand recognition are all common intangible assets in today's marketplace. An intangible asset can be classified as either indefinite
or definite depending on the specifics of that asset. A company brand name is considered to be an indefinite asset, as it stays with the company
as long as the company continues operations. However, if a company enters a legal agreement to operate under another company's patent,
with no plans of extending the agreement, it would have a limited life and would be classified as a definite asset.
While intangible assets don't have the obvious physical value of a factory or equipment, they can prove very valuable for a firm and can be critical
to its long-term success or failure. For example, a company such as Coca-Cola wouldnt be nearly as successful was it not for the high value
obtained through its brand-name recognition. Although brand recognition is not a physical asset you can see or touch, its positive effects on
bottom-line profits can prove extremely valuable to firms such as Coca-Cola, whose brand strength drives global sales year after year.
Investment Banker
A person representing a financial institution that is in the business of raising capital for corporations and municipalities.
An investment banker may not accept deposits or make commercial loans. Investment bankers are the people who do the grunt
work for IPOs and bond issues.
London Interbank Offered Rate - LIBOR
An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market.
The LIBOR is fixed on a daily basis by the British Bankers' Association. The LIBOR is derived from a filtered average of the
world's most creditworthy banks' interbank deposit rates for larger loans with maturities between overnight and one full year.
The LIBOR is the world's most widely used benchmark for short-term interest rates. It's important because it is the rate at

which the world's most preferred borrowers are able to borrow money. It is also the rate upon which rates for less preferred
borrowers are based. For example, a multinational corporation with a very good credit rating may be able to borrow money
for one year at LIBOR plus four or five points.
Countries that rely on the LIBOR for a reference rate include the United States, Canada, Switzerland and the U.K.
Management Buyout - MBO
When the managers and/or executives of a company purchase controlling interest in a company from existing shareholders.
In most cases, the management will buy out all the outstanding shareholders and then take the company private because it
feels it has the expertise to grow the business better if it controls the ownership. Quite often, management will team up with
a venture capitalist to acquire the business because it's a complicated process that requires significant capital.
Minority Interest
1.

A significant but non-controlling ownership of less than 50% of a company's voting shares by either an investor or another company.
2. A non-current liability that can be found on a parent company's balance sheet that represents the proportion of its subsidiaries owned by minority shareholders.

1.

In accounting terms, if a company owns a minority interest in another company but only has a minority passive position (i.e. it is unable to exert influence), then
all that is recorded from this investment are the dividends received from the minority interest. If the company has a minority active position (i.e. it is able to exert
influence), then both dividends and a percent of income are recorded on the company's books.
2. If ABC Corp. owns 90% of XYZ inc, which is a $100 million company, on ABC Corp.'s balance sheet, there would be a $10 million liability in minority interest
account to represent the 10% of XYZ Inc. that ABC Corp does not own.

Mortgage Servicing Rights - MSR

A contractual agreement where the right, or rights, to service an existing mortgage are sold by the original lender to another party who specializes in the various functions of
servicing mortgages. Common rights included are the right to collect mortgage payments monthly, set aside taxes and insurance premiums in escrow, and forward interest and
principle to the mortgage lender.
The mortgage servicer must supply an annual statement outlining the duties that were performed. In return for this assistance, the servicer is compensated with a specific fee
outlined in the contract established at the beginning of the agreement. Mortgage servicing rights can be bought and sold, resulting in the transfer of any administrative
obligations.
Many vertically integrated lenders today will service their mortgages in-house, which means they will also own both the loan and the servicing rights. These firms will
also save money in the process.
The business of selling servicing rights for mortgages represents a large business niche, and is a multi-billion dollar industry.
Nasdaq
The term "Nasdaq" used to be capitalized "NASDAQ" as an acronym for National Association of Securities Dealers Automated Quotation.
The acronym is no longer used and Nasdaq is now a proper noun.
Non-Recourse Debt

A type of loan that is secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral,
but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted
amount. This is one instance where the borrower does not have personal liability for the loan.
These types of projects are characterized by high capital expenditures, long loan periods and uncertain revenue streams.
Analyzing them requires a sound knowledge of the underlying technical domain as well as financial modeling skills.

Non-Recourse Finance
A loan where the lending bank is only entitled to repayment from the profits of the project the loan is funding, not from other assets of the borrower.
These types of projects are characterized by high capital expenditures, long loan periods, and uncertain revenue streams.
Analyzing them requires a sound knowledge of the underlying technical domain as well as financial modeling skills.
Obsolete Inventory
Term that refers to inventory that is at the end of its product life cycle and has not seen any sales or usage for a set period of time
usually determined by the industry. This type of inventory has to be written down and can cause large losses for a company.
Also referred to as "dead inventory" or "excess inventory".
Large amounts of obsolete inventory are a warning sign for investors: they can be symptomatic of poor products, poor management
forecasts of demand, and poor inventory management. Looking at the amount of obsolete inventory a company creates will give
investors an idea of how well the product is selling and of how effective the company's inventory process is.
Opportunity Cost
1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could
have received by taking an alternative action.
2. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it
returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment
say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%).
The opportunity cost of going to college is the money you would have earned if you worked instead. On the one hand,
you lose four years of salary while getting your degree; on the other hand, you hope to earn more during your career,
thanks to your education, to offset the lost wages.
Here's another example: if a gardener decides to grow carrots, his or her opportunity cost is the alternative crop that might
have been grown instead (potatoes, tomatoes, pumpkins, etc.).
In both cases, a choice between two options must be made. It would be an easy decision if you knew the end outcome;
however, the risk that you could achieve greater "benefits" (be they monetary or otherwise) with another option is the opportunity cost.
Passive Income
Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved.

There are three main categories of income: active income, passive income and portfolio income. Passive income does not include earnings from wages or active business
participation, nor does it include income from dividends, interest or capital gains. For tax purposes, it is important to note that losses in passive income generally cannot offset
active or portfolio income.
Passive Investing
An investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the
intention of long-term appreciation and limited maintenance. Also known as a buy-and-hold or couch potato strategy, passive
investing requires good initial research, patience and a well diversified portfolio. Unlike active investors, passive investors buy
a security and typically don't actively attempt to profit from short-term price fluctuations. Passive investors instead rely on their
belief that in the long term the investment will be profitable
Pension Fund
A fund established by an employer to facilitate and organize the investment of employees' retirement funds contributed by the employer and employees.
The pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they
reach the end of their working years and commence retirement. Pension funds are commonly run by some sort of financial intermediary for the
company and its employees, although some larger corporations operate their pension funds in-house. Pension funds control relatively large
amounts of capital and represent the largest institutional investors in many nations.
Private Placement
Raising of capital via private rather than public placement. The result is the sale of securities to a relatively small number of investors.
Investors involved in private placements are usually large banks, mutual funds, insurance companies, and pension funds.
Since a private placement is offered to a few, select individuals, the placement does not have to be registered with the Securities and
Exchange Commission. In many cases detailed financial information is not disclosed and a the need for a prospectus is waived.
Finally since the placements are private rather than public, the average investor is only made aware of the placement usually after it has occurred.
Quorum
The minimum acceptable level of individuals with a vested interest in a company needed to make the proceedings of a
meeting valid under the corporate charter.
This clause within a company's charter ensures that there is a sufficient representation of stockholders present at meetings
before any changes can be made by the board.
Replacement Cost
The price that will have to be paid to replace an existing asset with a similar asset.
This is relevant because the replacement cost will most likely be different than fair market value or net realizable value
Rescission
The right of an individual involved within a contract to return to the identical state as before they entered into the agreement,
due to courts not recognizing the contract as legally binding. This is an important factor in the business world, as contracts
are commonplace. Should a contract not be legally binding, most often courts will try to return the non-liable parties affected

to the state they were in before the contract was entered.

Restructuring
A significant modification made to the debt, operations or structure of a company. This type of corporate action is usually made
when there are significant problems in a company, which are causing some form of financial harm and putting the overall business
in jeopardy. The hope is that through restructuring, a company can eliminate financial harm and improve the business.
When a company is having trouble making payments on its debt, it will often consolidate and adjust the terms of the debt
in a debt restructuring. After a debt restructuring, the payments on debt are more manageable for the company and the likelihood
of payment to bondholders increases. A company restructures its operations or structure by cutting costs, such as payroll, or reducing
its size through the sale of assets. This is often seen as necessary when the current situation at a company is one that may lead to its collapse.
Return On Assets - ROA
An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its
assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.
Sometimes this is referred to as "return on investment".

Note: Some investors add interest expense back into net income when performing this calculation because they'd like to use operating
returns before cost of borrowing.
ROA tells you what earnings were generated from invested capital (assets). ROA for public companies can vary substantially and will be
highly dependent on the industry. This is why when using ROA as a comparative measure, it is best to compare it against a company's
previous ROA numbers or the ROA of a similar company.
Revolving Credit
A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed.
It is usually used for operating purposes, fluctuating each month depending on the customer's current cash flow needs.
Often referred to as "revolver".
Revolving lines of credit can be taken out by both corporations and individuals. The bank that is in agreement with the
customer guarantees a maximum amount that can be loaned to the customer. Along with the commitment fee there are
also interest expenses for corporate borrowers and carry forward charges for consumer accounts.
Royalty
A payment to an owner for the use of property, especially patents, copyrighted works, franchises or natural resources.
Royalties are usually expressed as a percentage of the revenues obtained through the use of the owner's property.
S-8 Filing
A SEC filing required for companies wishing to issue equity to their employees.
Similar to filing a prospectus, the S-8 outlines the details of an internal issuing of stock or options to employees.

Securitization
The process through which an issuer creates a financial instrument by combining other financial assets and then
marketing different tiers of the repackaged instruments to investors. The process can encompass any type of financial
asset and promotes liquidity in the marketplace
Mortgage-backed securities are a perfect example of securitization. By combining mortgages into one large pool,
the issuer can divide the large pool into smaller pieces based on each individual mortgage's inherent risk of default
and then sell those smaller pieces to investors.
The process creates liquidity by enabling smaller investors to purchase shares in a larger asset pool. Using the
mortgage-backed security example, individual retail investors are able to purchase portions of a mortgage as a
type of bond. Without the securitization of mortgages, retail investors may not be able to afford to buy into a
large pool of mortgages.
Seed Capital
The initial capital used to start a business. Seed capital often comes from the company founders' personal assets or from friends and family.
The amount of money is usually relatively small because the business is still in the idea or conceptual stage. Such a venture is generally at a
pre-revenue stage and seed capital is needed for research & development, to cover initial operating expenses until a product or service can
start generating revenue, and to attract the attention of venture capitalists.
Secondary Offering
The issuance of new stock for public sale from a company that has already made its initial public offering (IPO). Usually, these kinds of
public offerings are made by companies wishing to refinance, or raise capital for growth. Money raised from these kinds of secondary offerings
goes to the company, through the investment bank that underwrites the offering. Investment banks are issued an allotment, and possibly an
over allotment which they may choose to exercise if there is a strong possibility of making money on the spread between the allotment price
and the selling price of the securities. A sale of securities in which one or more major stockholders in a company sell all or a large portion of
their holdings. The proceeds of this sale are paid to the stockholders that sell their shares. Often, the company that issued the shares holds a
large percentage of the stocks it issues.
Senior Debt
In the event the issuer goes bankrupt, senior debt must be repaid before other creditors receive any payment.
Special Dividend
A non-recurring distribution of company assets, usually in the form of cash, to shareholders. A special dividend is larger compared to
normal dividends paid out by the company. Also referred to as an "extra dividend
Generally, special dividends are declared after exceptionally strong company earnings results as a way to distribute the profits directly to
shareholders. Special dividends can also occur when a company wishes to make changes to its financial structure or to spin off a subsidiary
company to its shareholders. For example, GenTek Inc. issued a special cash dividend of $31 per share on Mar 16, 2005, in order to
restructure toward a more debt-based financing mix.
Ex-Date
The date on or after which a security is traded without a previously declared dividend or distribution.
After the ex-date, a stock is said to trade ex-dividend.
This is the date on which the seller, and not the buyer, of a stock will be entitled to a recently announced
dividend. The ex-date is usually two business days before the record date. It is indicated in newspaper listings with an x.

Cum Dividend
When a buyer of a security is entitled to receive a dividend that has been declared, but not paid.
Cum dividend means "with dividend." A stock trades cum-dividend up until the ex-dividend date.
On or after this point, the stock trades without its dividend rights.
Record Date
The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.
On the record date, a company looks to see who its shareholders or "holders of record" are. Essentially, a date of record ensures the dividend
checks get sent to the right people.
Payment Date
The date on which a declared stock dividend is scheduled to be paid.
Only those shareholders who bought the stock before the ex-dividend date
receive the dividend on the date of payment (payable date).
Declaration Date
The date on which the next dividend payment is announced by the directors of a company. This statement includes the dividend's
size, ex-dividend date and payment date. It is also referred to as the "announcement date".
The last day on which the holder of an option must indicate whether he or she will exercise the option. Also known as the "expiration date".
Dividend Recapitalization
When a company incurs a new debt in order to pay a special dividend to private investors or shareholders. This usually involves a
company owned by a private investment firm, which can authorize a dividend recapitalization as an alternative to selling its equity stake in the company.
Also known as a "dividend recap".
The dividend recap has seen explosive growth, primarily as an avenue for private investment firms to recoup some or all of the money they used
to purchase their stake in a business. It is generally not looked upon favorably by creditors or common shareholders because it reduces the
credit quality of the company while only benefiting a select few.
Debt Financing
When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors.
In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt
will be repaid.
The other way of raising capital is to issue shares of stock in a public offering. This is called equity financing.
Capital Structure
A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity.
The capital structure is how a firm finances its overall operations and growth by using different sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock,
preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to
be part of the capital structure.

Speculation
The process of selecting investments with higher risk in order to profit from an anticipated price movement.
Speculation should not be considered purely a form of gambling, as speculators do make an informed decision
before choosing to acquire the additional risks. Additionally, speculation cannot be categorized as a traditional
investment because the acquired risk is higher than average. More sophisticated investors will also use a hedging
strategy in combination with their speculative investment in order to limit potential losses.
Spin off
The creation of an independent company through the sale or distribution of new shares of an existing business/division of a parent company.
A spin off is a type of divestiture. Businesses wishing to 'streamline' their operations often sell less productive, or unrelated subsidiary
businesses as spin offs. The spun-off companies are expected to be worth more as independent entities than as parts of a larger business.
Stock Split
A corporate action in which a company's existing shares are divided into multiple shares. Although the number of shares
outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts,
because no real value has been added as a result of the split.
In the U.K., a stock split is referred to as a "scrip issue", "bonus issue", "capitalization issue" or "free issue".
For example, in a 2-for-1 split, each stockholder receives an additional share for each share he or she holds.
One reason as to why stock splits are performed is that a company's share price has grown so high that to many investors,
the shares are too expensive to buy in round lots.
For example, if a XYZ Corp.'s shares were worth $1,000 each, investors would need to purchase $100,000 in order to own 100 shares.
If each share was worth $10, investors would only need to pay $1,000 to own 100 shares.
Split-Up
A corporate action in which a single company splits into two or more separately run companies. Shares of the original
company are exchanged for shares in the new companies, with the exact distribution of shares depending on each situation.
This is an effective way to break up a company into several independent companies. After a split-up, the original company ceases to exist.
Split-Off
A type of corporate reorganization whereby the stock of a subsidiary is exchanged for shares in a parent company.
This is a somewhat rare situation. For example, Viacom announced a split off of its interest in Blockbuster in 2004
whereby Viacom offered its shareholders stock in Blockbuster in exchange for an appropriate amount of Viacom stock.
Stockbroker

1.

An agent that charges a fee or commission for executing buy and sell orders submitted by an investor.
2. The firm that acts as an agent for a customer, charging the customer a commission for its services.

Subprime
A classification of borrowers with a tarnished or limited credit history. Lenders will use a credit scoring system to determine
which loans a borrower may qualify for. Subprime loans carry more credit risk, and as such, will carry higher interest rates as well.
Approximately 25% of mortgage originations are classified as subprime.
Sunk Cost
A cost that has been incurred and cannot be reversed. Also referred to as "stranded cost."
Surtax
An additional tax on income paid by an individual or corporation.
Self-Employment Tax
A tax imposed on self-employed people, who must pay this tax in order to receive social-security benefits upon retirement.
The self-employment tax may be reduced if the person also pays social security and Medicare taxes through another employer.
Payroll Tax
Tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of the employee.
In most countries, including the U.S., both state and federal authorities collect some form of payroll tax
Withholding Tax
1.

Income tax withheld from employees' wages and paid directly to the government by the employer.
2. A tax levied on income (interest and dividends) from securities owned by a non-resident.

1.

The amount withheld is a credit against the income taxes the employee must pay during the year.
2. Tax is deducted not only from dividends, but from other income paid to non-residents of a country.

Switching Costs
The negative costs that a consumer incurs as a result of changing suppliers, brands or products.
Although most prevalent switching costs are monetary in nature, there are also psychological, effort- and time-based switching costs.
Sweat Equity
The equity that is created in a company or some other asset as a direct result of hard work by the owner(s

For example, the work you might put into rebuilding the engine on your 1968 Mustang to increase its value would be considered sweat equity.
Tax Evasion
An illegal practice where a person, organization or corporation intentionally avoids paying his/her/its true tax liability. Those caught evading
taxes are generally subject to criminal charges and substantial penalties.There is a difference between tax minimization/avoidance and tax evasion.
All citizens have the right to reduce the amount of taxes they pay as long as it is by legal means.There is a difference between tax minimization/avoidance
and tax evasion. All citizens have the right to reduce the amount of taxes they pay as long as it is by legal means.
Technical Analysis
A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do
not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.
Technical analysts believe that the historical performance of stocks and markets are indications of future performance.
In a shopping mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not.
By contrast, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products
in the store, his or her decision would be based on the patterns or activity of people going into each store.
Tier 1 Capital
A term used to describe the capital adequacy of a bank. Tier I capital is core capital; this includes equity capital and disclosed reserves.
Equity capital includes instruments that can't be redeemed at the option of the holder.
Tier 2 Capital
A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital that includes items such
as undisclosed reserves, general loss reserves, subordinated term debt, and more.
Tier 3 Capital
Tertiary capital held by banks to meet part of their market risks, that includes a greater variety of debt than tier 1 and tier 2 capitals.
Tier 3 capital debts may include a greater number of subordinated issues, undisclosed reserves and general loss reserves compared to tier 2 capital.
Tracking Stock
Common stock issued by a parent company that tracks the performance of a particular division without having claim on the assets of the division
or the parent company. Also known as "designer stock".
A type of security specifically designed to mirror the performance of a larger index.
When a parent company issues a tracking stock, all revenues and expenses of the applicable division are separated from the parent company's financial
statements and bound to the tracking stock. Oftentimes, this is done to separate a subsidiary's high-growth division from a larger parent company that
is presenting losses. The parent company and its shareholders, however, still control the operations of the subsidiary.
The most popular tracking stock is the QQQQ, which is an exchange-traded fund that mirrors the returns of the Nasdaq 100 index.
Another type of tracking stock is Standard & Poor's depository receipts (SPDRs), which mirror the returns of the S&P 500 index
Underwriter
A company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body.
An underwriter works closely with the issuing body to determine the offering price of the securities buys them from the issuer and sells
them to investors via the underwriter's distribution network.

Underwriters generally receive underwriting fees from their issuing clients, but they also usually earn profits when selling the underwritten
shares to investors. However, underwriters assume the responsibility of distributing a securities issue to the public. If they can't sell all of the
securities at the specified offering price, they may be forced to sell the securities for less than they paid for them, or retain the securities themselves
Valuation Analysis
A form of fundamental analysis that looks to compare the valuation of one security to another, to a group of securities or within its own
historical context. Valuation analysis is done to evaluate the potential merits of an investment or to objectively assess the value of a business or asset.
Valuation analysis is one of the core duties of a fundamental investor, as valuations (along with cash flows) are typically the most important drivers
of asset prices over the long term.
Valuation analysis should answer the simple, yet vital, question of, "What is something worth?" The analysis is then based on either current projections
or projections of the future. While investors can agree on a metric like the current price-to-earnings ratio (P/E ratio), how to interpret a given
valuation can and will differ among those same investors.
Many types of valuation methods are used, involving several sets of metrics. For equities, the most common valuation metric to use is the P/E ratio,
although other valuation metrics include: Price/Earnings, Price/Book Value, Price/Sales, Enterprise Value/EBIDTA, Economic
Value Added and Discounted Cash Flow
Venture Capital
Financing for new businesses. In other words, money provided by investors to startup firms and small businesses with perceived,
long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets.
It typically entails high risk for the investor, but it has the potential for above-average returns
Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment
banks and other financial institutions that pool such investments or partnerships. This form of raising capital is popular among new companies,
or ventures, with limited operating history, who cannot raise funds through a debt issue. The downside for entrepreneurs is that venture capitalists
usually get a say in company decisions, in addition to a portion of the equity.
Volatility
A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard
deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.
A variable in option pricing formulas showing the extent to which the return of the underlying asset will fluctuate between now and the option's expiration.
Volatility, as expressed as a percentage coefficient within option-pricing formulas, arises from daily trading activities. How volatility is measured will
affect the value of the coefficient used.
Weighted Average Cost Of Capital - WACC
A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock,
preferred stock, bonds and any other long-term debt - are included in a WACC calculation.
WACC is calculated by multiplying the cost of each capital component by its proportional weight and then summing:

Write-Up
An increase made to the book value of an asset because it is undervalued compared to market values.

A write-up will increase a company's accounting book value without any expenditures. For example, if an economy experiences
significant inflation, a production company may decide to write up its inventory to better match the market price.
Zero-Based Budgeting - ZBB
A method of budgeting in which all expenses must be justified for each new period. Zero-based budgeting starts from a "zero base" and every
function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period,
regardless of whether the budget is higher or lower than the previous one.
ZBB allows top-level strategic goals to be implemented into the budgeting process by tying them to specific functional areas of the organization,
where costs can be first grouped, then measured against previous results and current expectations.
Because of its detail-oriented nature, zero-based budgeting may be a rolling process done over several years, with only a few functional areas
reviewed at a time by managers or group leadership. Zero-based budgeting can lower costs by avoiding blanket increases or decreases to a prior
period's budget. It is, however, a time-consuming process that takes much longer than traditional, cost-based budgeting. The practice also favors
areas that achieve direct revenues or production; their contributions are more easily justified than in departments such as client service and
research and development.
Zero-Coupon Bond
A debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is
redeemed for its full face value.
Also known as an "accrual bond".
Some zero-coupon bonds are issued as such, while others are bonds that have been stripped of their coupons by a financial institution and
then repackaged as zero-coupon bonds. Because they offer the entire payment at maturity, zero-coupon bonds tend to fluctuate in price much
more than coupon bonds.